|Trading the Edges|
|Written by L.A. Little|
|Wednesday, 12 December 2012 06:25|
Trading the edges of a trend is almost always difficult for what exactly is an edge and how can you determine when one is right in front of you. When I speak of an edge, I simply mean the point where price either stops advancing and turns lower or when price stops pushing lower and turns higher. As for how you determine that point in time - well, that is a bit more difficult.
There are many methods to the madness. Many folks like to use oscillators. Other look for certain patterns. My approach is levels - price levels at known levels where significance was shown on some prior occasion. That is what anchored support and resistance zones are - places on the chart where supply and demand or evident and can be measured against.
If we look at the current chart of the Dow Jones Industrial Average, you can clearly see some anchored resistance bars and the resultant zone. The top of the day the ECB did it's thing and the bottom of the bar where the Fed followed suite is a clearly defined area on the chart where supply overwhelmed demand - price pushed higher and volume expanded at that time as compared to other volume bars. The price range also expanded. That's what makes an anchor bar and the overlap or congruency of the anchor bars gives you zones.
The same is true of support zones. Once you identify the zones then you can see how the market reacts when a zone is reached. Does volume and price ranges expand? Do they contract? How the market reacts now to a price area that was previously shown as significant is an indication of what the market will do next. That's how you trade the edges. It's the place in time where risk is least and reward the greatest. Its the place where your probabilities of success increase. It's what you should always be searching for and trading off of. We are there now.